Easy Ways to Start Investing

July 20, 2017

Investing is important. Investing puts your money to work. Investing harnesses the power of compound interest. Investing also protects your money from inflation. Yes, investing, especially in the stock market, does carry short term risk. So it is important to only invest money that you are committed to keeping invested for a decade or more. But many people don’t invest for other reasons. Often they are either intimidated by investing or just don’t know where to start. Investing doesn’t have to be complicated or hard. Following is a list of services and brokerages that make it easy to invest your money.

Index Funds

Index funds are at the top of the list for a reason. Pioneered by Vanguard, index funds have made investing affordable and accessible. Index funds are boring. Boring is good. All they do is track certain stock market indexes- which is great, since stock market indexes have historically returned 8-12% annually. They don’t try to beat the market, because trying to beat the market is dangerous and expensive. Most importantly, they are reasonably accessible, with minimum opening deposits typically between $1,000 and $3,000, depending on the index fund. For straightforward long term investing, an index fund that mirrors the S&P 500 or the Dow Jones is hard to beat. These generally have the lowest expense ratios and have some of the longest track records.

You can buy index funds from almost any broker or financial adviser. However, by using a middleman, you will incur additional expenses and potentially advice and guidance not in your best interest. The best place to buy these index funds is from the fund company itself. Three fund companies that excel at index funds are:

Individual Stocks and ETFs

You can buy and sell individual stocks and ETFs from any broker. Brokers will advertise a slew of services and software. The single most important distinguishing feature, however, is pricing. Typically, brokers charge per stock trade, although some will also charge a monthly fee.

In general, I recommend staying away from individual stocks because it opens your investments up to human error and lack of diversification. To do it right, managing a portfolio of stocks can also be time consuming and nerve-wracking. However, with discipline, it is possible to build a solid, diversified portfolio. You also may have a little money that you’d like to invest with strictly for fun.

Exchange Traded Funds (ETFs), however, can be a solid part of any investment plan. ETFs are basically mutual funds rolled into a stock. They still give you the same diversification as a mutual fund (most are a mirror of a conventional mutual fund), but can be bought and sold as easily as a stock. ETFs might be a good option if you are interested in investing in mutual funds from multiple fund companies (ie, Vanguard and Blackrock), since you’d be able to do so in a single account. Again, I’d recommend sticking to index-fund ETFs, as these will have significantly lower underlying costs.

TD Ameritradecharges $6.95 per trade, is not the cheapest option for most trades. However, TD Ameritrade offers a large selection of ETFs that trade for free.

Robinhoodtakes the cake for low costs. Or rather no costs. However, Robinhood currently only offers taxable accounts (no IRAs or Roth IRAs).

If you do want individual stocks in a retirement account, $5 per trade is about as cheap as you can find, offered by the following, among others

Robo-Advisers

For some, setting up a brokerage may still be too intimidating. Brokerages offer a lot of options and perhaps too many for some. Robo-advisers help navigate the options and select the best investments (often index funds) for you. As the name suggests, these services offer computer generated financial guidance, aiming to replace a traditional financial adviser. Proponents say that robo-advising is less prone to human error. Their management fee is also significantly lower than a traditional adviser. Several robo-advisers also have no or extremely low minimums, making it incredibly easy to dabble your toes in the investment waters. If you have no idea where to start investing, any of the following would be a great place to start:

Investing Your Spare Change

We’re in the 21st century so of course, ‘there’s an app for that’. Most, if not all of the options listed above have apps to help you manage your investments. However, Acorns makes investing painlessly easy to invest by rounding up your day to day debit and credit card purchases to the next dollar and investing the change. Depending on how many purchases you make each month, you could easily be investing $30, $40, $50 or more each month (several hundred a year), just in spare change. Ideally, at some point, you’ll take the bold step of investing a regular amount each month (which you can also do with Acorns), but at least your spare change is a decent start. And the numbers show that time matters when it comes to saving. So if you’re not quite ready to take the plunge with other investment options, at least start with your spare change. And if you sign up for Acorns with this link, you’ll even get $5 free.

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While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.

Good question, Brad. There are certainly several mutual funds and ETFs that aim to invest socially responsibly- often targeting a certain goal (climate friendly, minority friendly, etc). WIL, KLD, ETHO and SPYX are a few examples. Strictly from a financial standpoint, I think it’s too early to tell if socially responsible funds will outperform the market on average (although there are certainly funds that have done very well).

From a moral standpoint, you can certainly make the case that socially responsible investing can nudge companies to make more moral choices by rewarding companies that do. However, you can also make the case that another investor would step in where you didn’t, making your efforts pointless. Your call in the end.

Thanks for this primer. I get asked a fair amount about how to invest. For some reason I’ve not written one yet. I’m glad that you wrote this so I can refer it to others. Have you tried a robo advisor? I’d love to try one but I’m also old school about it.